Deck 6: Consolidated Financial Statements: Intercompany Transactions

Question 1

A parent provides consulting services to its wholly-owned subsidiary during the year. The parent charged the subsidiary $300,000 for the services. The parent's cost of providing the services is $265,000. The companies use service revenue and service expense, as appropriate, to record this transaction on their own books. The consolidation eliminating entry or entries related to the intercompany services include an adjustment to the parent's accounts as follows:

A) a credit to service revenue, $265,000.
B) a debit to service expense, $265,000.
C) a debit to service revenue, $300,000.
D) a credit to service expense, $300,000.

Answer 1

a debit to service revenue, $300,000.

Question 2

A parent provides consulting services to its wholly-owned subsidiary during the year. The parent charged the subsidiary $600,000 for the services. The parent's cost of providing the services is $520,000. The companies use service revenue and service expense, as appropriate, to record this transaction on their own books. The consolidation eliminating entry or entries related to the intercompany services include an adjustment to the subsidiary's accounts as follows:

A) a credit to service revenue, $600,000.
B) a debit to service expense, $520,000.
C) a debit to service revenue, $520,000.
D) a credit to service expense, $600,000.

Answer 2

a credit to service expense, $600,000.

Question 3

A wholly-owned subsidiary provides services to its parent during the year. Cost of services provided is $400,000. The subsidiary charged the parent $600,000 for the services. Which statement is false concerning eliminating entry (I) related to these intercompany services?

A) Eliminating entry (I) removes the subsidiary's service expense of $400,000.
B) Eliminating entry (I) removes the subsidiary's service revenue of $600,000.
C) Eliminating entry (I) removes the parent's service expense of $600,000.
D) Eliminating entry (I) has no effect on consolidated income.

Answer 3

Eliminating entry (I) removes the subsidiary's service expense of $400,000.

Question 4

A wholly-owned subsidiary provided services to its parent during the current year, at a cost of $120,000. The subsidiary charged the parent $200,000 for the services. On the year's consolidated income statement, what should be reported with respect to this information?

A) Only service revenue, $200,000
B) Only service expense, $120,000
C) Service revenue $200,000 and service expense $120,000
D) Only service expense, $200,000

Question 5

Pell Company provides services to its subsidiary, Slicker Corporation, during the current year. This is how Pell and Slicker report these services on their respective income statements:
$$\begin{array} { | l | c | c | } \hline & \text { Pell } & \text { Slicker } \\\hline \text { Service revenue } & \$ 400,000 & \$ - - \\\hline \text { Service expense } & \$ 350,000 & 400,000 \\\hline\end{array}$$ How should the consolidated income statement for the year report these services?

A)Service Revenue $400,000 Service Expense $350,000
B)Service Revenue $400,000 Service Expense $750,000
C)Service Revenue $-0- Service Expense $350,000
D)Service Revenue $-0- Service Expense $750,000

Question 6

A parent charges $800,000 for services provided to a subsidiary and reports this amount as service revenue. The price reflects a markup of 25% over cost. Both companies report service expenses as part of operating expenses. What eliminating entry is necessary with respect to this intercompany transaction?

A) Debit investment in subsidiary, credit operating expenses for $640,000
B) Debit service revenue, credit operating expenses for $640,000
C) Debit service revenue, credit operating expenses for $800,000
D) Debit beginning retained earnings, credit operating expenses for $160,000

Question 7

A parent loans $90,000 to its subsidiary on May 1 of the current year, at an annual interest rate of 2%. Interest payments are due semiannually on October 31 and April 30 of each year. The accounting year ends December 31. The consolidation eliminating entries include a debit to the subsidiary's interest payable account in the amount of:

A) $90,000
B) $ 1,800
C) $ 300
D) $ 900

Question 8

A subsidiary borrowed $150,000 from its parent in a previous year. Interest payments at an annual rate of 3% are due semiannually on March 1 and September 1 of each year. The accounting year ends December 31. Consolidation eliminating entries for the year include a credit to interest expense in the amount of:

A) $4,500
B) $2,250
C) $ 750
D) $1,500

Question 9

A wholly-owned subsidiary obtained a $500,000 loan from its parent on April 1, 2019, at a 3% annual rate of interest. Interest is payable annually on March 31 of each year. The accounting year ends December 31. It is now December 31, 2021, and the loan is still outstanding. Eliminating entries (I) at December 31, 2021 include a credit to interest receivable of:

A) $ 3,750
B) $11,250
C) $15,000
D) $ 7,500

Question 10

A wholly-owned subsidiary obtained a $500,000 loan from its parent on April 1, 2019, at a 3% annual rate of interest. Interest is payable annually on March 31 of each year. The accounting year ends December 31. It is now December 31, 2021, and the loan is still outstanding. Eliminating entries (I) at December 31, 2021 include a credit to interest expense of:

A) $ 3,750
B) $11,250
C) $15,000
D) $ 7,500

Question 11

A wholly-owned subsidiary obtained a $500,000 loan from its parent on April 1, 2019, at a 3% annual rate of interest. Interest is payable annually on March 31 of each year. The accounting year ends December 31. It is now December 31, 2021, and the loan is still outstanding. The parent uses the complete equity method to report its investment in subsidiary on its own books. How does the intercompany loan affect the parent's equity in net income calculation?

A) Subtract $15,000
B) Add $11,250
C) Subtract $3,750
D) no effect

Question 12

During the current year, a parent provides services costing it $100,000 to its wholly-owned subsidiary, charging $140,000 for the services. At year-end, the subsidiary still owes the parent $5,000 for these services. How do these intercompany transactions affect the parent's equity in income for the year, assuming the parent uses the complete equity method to report its investment on its own books?

A) $40,000 is deducted
B) No effect
C) $5,000 is added
D) $140,000 is added

Question 13

A subsidiary has a $30,000 loan obtained from its parent in a previous year. The parent charges interest on the loan at a 3% annual rate, and interest is paid on June 1 and December 1 of each year. How does this intercompany affect the parent's equity in income for the year, assuming the parent uses the complete equity method to report its investment on its own books?

A) $900 is deducted
B) $75 is deducted
C) No effect
D) $900 is added

Question 14

A parent owns 80% of the voting stock of its subsidiary. The subsidiary has a $30,000 loan obtained from its parent in a previous year. The parent charges interest on the loan at a 3% annual rate, and interest is paid on June 1 and December 1 of each year. How does this intercompany affect the parent's equity in income for the year, assuming the parent uses the complete equity method to report its investment on its own books?

A) $720 is deducted
B) $60 is deducted
C) $720 is added
D) No effect

Question 15

A parent has a 90% interest in its subsidiary. The subsidiary sold land at a gain to the parent in a previous year. The parent still holds the land. How does this transaction affect equity in net income and noncontrolling interest in net income for the current year, assuming the parent uses the complete equity method to report its investment on its own books?

A) No effect
B) Only affects equity in net income
C) Only affects noncontrolling interest in net income
D) Affects equity in net income and noncontrolling interest in net income.

Question 16

A parent has a 90% interest in its subsidiary. The subsidiary sold land at a gain to the parent in the current year. The parent still holds the land. How does this transaction affect equity in net income and noncontrolling interest in net income for the current year, assuming the parent uses the complete equity method to report its investment on its own books?

A) No effect
B) Only affects equity in net income
C) Only affects noncontrolling interest in net income
D) Affects equity in net income and noncontrolling interest in net income.

Question 17

A parent has a 90% interest in its subsidiary. The parent sold land at a gain to the subsidiary in the current year. The subsidiary still holds the land. How does this transaction affect equity in net income and noncontrolling interest in net income for the current year, assuming the parent uses the complete equity method to report its investment on its own books?

A) No effect
B) Only affects equity in net income
C) Only affects noncontrolling interest in net income
D) Affects equity in net income and noncontrolling interest in net income.

Question 18

A parent sells land to its 80%-owned subsidiary at a gain of $100,000. The following year, the subsidiary sells the land to an outside entity for a gain of $10,000. How is the noncontrolling interest in net income affected in the year the subsidiary sells the land?

A) Increase of $20,000
B) Decrease of $22,000
C) Decrease of $2,000
D) No effect

Question 19

An 80%-owned subsidiary sells land to its parent at a gain of $100,000. The following year, the parent sells the land to an outside entity for a gain of $10,000. How is the noncontrolling interest in net income affected in the year the parent sells the land?

A) Increase of $20,000
B) Decrease of $22,000
C) Decrease of $2,000
D) No effect

Question 20

A parent has a 60% interest in its subsidiary. Ending inventory profits on downstream merchandise sales:

A) Increase equity in net income and the noncontrolling interest in net income
B) Only reduce equity in net income
C) Reduce equity in net income and the noncontrolling interest in net income
D) Only increase equity in net income

Question 21

A parent has a 60% interest in its subsidiary. Ending inventory profits on upstream merchandise sales:

A) Increase equity in net income and the noncontrolling interest in net income
B) Only reduce equity in net income
C) Reduce equity in net income and the noncontrolling interest in net income
D) Only increase equity in net income

Question 22

A wholly-owned subsidiary sells merchandise to its parent at a markup of 25% on cost. During the current year, the parent paid $725,000 for merchandise received from the subsidiary. By year-end, the parent has sold $600,000 of the merchandise to outside customers for $900,000, but still holds the other $125,000 in its ending inventory. The parent uses the complete equity method to record its investment in subsidiary on its own books. What is the impact of the above information on the parent's equity in net income of subsidiary for the year, as reported on the parent's books?

A) Subtract $25,000
B) Add $25,000
C) Subtract $100,000
D) Add $100,000

Question 23

An 80%-owned subsidiary sells merchandise to its parent at a markup of 25% on cost. During the current year, the parent paid $725,000 for merchandise received from the subsidiary. By year-end, the parent has sold $600,000 of the merchandise to outside customers for $900,000, but still holds the other $125,000 in its ending inventory. What is the impact of the above information on noncontrolling interest in net income, reported on the consolidated income statement for the year?

A) No effect
B) Subtract $5,000
C) Subtract $20,000
D) Subtract $25,000

Question 24

A 90%-owned subsidiary sells merchandise to its parent at a markup of 20% on cost. The parent's beginning inventory includes $120,000 purchased from the subsidiary. The parent's ending inventory includes $156,000 purchased from the subsidiary. What is the impact of the above information on noncontrolling interest in net income, reported on the consolidated income statement for the year?

A) No effect
B) Subtract $6,000
C) Subtract $600
D) Subtract $3,600

Question 25

A parent sells merchandise to its 90%-owned subsidiary at a markup of 20% on cost. The parent's beginning inventory includes $120,000 purchased from the subsidiary. The parent's ending inventory includes $156,000 purchased from the subsidiary. What is the impact of the above information on noncontrolling interest in net income, reported on the consolidated income statement for the year?

A) No effect
B) Subtract $6,000
C) Subtract $600
D) Subtract $3,000

Question 26

A parent sells merchandise to its 90%-owned subsidiary at a markup of 20% on cost. The parent's beginning inventory includes $120,000 purchased from the subsidiary. The parent's ending inventory includes $156,000 purchased from the subsidiary. What is the impact of the above information on equity in net income, reported on the parent's books, assuming the parent uses the complete equity method?

A) No effect
B) Subtract $6,000
C) Subtract $5,400
D) Subtract $27,000

Question 27

A parent has a wholly-owned subsidiary. At the end of the year, the subsidiary's ending inventory includes $50,000 in unconfirmed profit on merchandise purchased from the parent. The subsidiary's beginning inventory included unconfirmed profit of $45,000 on merchandise purchased from the parent. The parent's ending inventory includes $80,000 in unconfirmed profit on merchandise purchased from the subsidiary. The parent's beginning inventory included $110,000 in unconfirmed profit on merchandise purchased from the subsidiary. What is the effect of the above information on the parent's equity in net income of the subsidiary for the year, assuming the parent uses the complete equity method?

A) Decrease of $25,000
B) Increase of $25,000
C) Increase of $5,000
D) Decrease of $30,000

Question 28

A parent owns 80% of its subsidiary's voting stock. At the end of the year, the subsidiary's ending inventory includes $20,000 in unconfirmed profit on merchandise purchased from the parent. The subsidiary's beginning inventory included unconfirmed profit of $14,000 on merchandise purchased from the parent. The parent's ending inventory includes $50,000 in unconfirmed profit on merchandise purchased from the subsidiary. The parent's beginning inventory included $30,000 in unconfirmed profit on merchandise purchased from the subsidiary. What is the effect of the above information on noncontrolling interest in net income for the year, reported on the consolidated income statement?

A) Decrease of $1,200
B) Increase of $2,800
C) Increase of $4,000
D) Decrease of $4,000

Question 29

A parent owns 80% of its subsidiary's voting stock. At the end of the year, the subsidiary's ending inventory includes $20,000 in unconfirmed profit on merchandise purchased from the parent. The subsidiary's beginning inventory included unconfirmed profit of $14,000 on merchandise purchased from the parent. The parent's ending inventory includes $50,000 in unconfirmed profit on merchandise purchased from the subsidiary. The parent's beginning inventory included $30,000 in unconfirmed profit on merchandise purchased from the subsidiary. What is the effect of the above information on equity in net income for the year, reported on the parent's books, assuming the parent uses the complete equity method to account for its investment?

A) Decrease of $22,000
B) Decrease of $26,000
C) Decrease of $20,800
D) Increase of $35,200

Question 30

A parent owns 80% of its subsidiary's voting stock. At the end of the year, the parent's ending inventory includes $20,000 in unconfirmed profit on merchandise purchased from the subsidiary. The parent's beginning inventory included unconfirmed profit of $14,000 on merchandise purchased from the subsidiary. The subsidiary's ending inventory includes $50,000 in unconfirmed profit on merchandise purchased from the parent. The subsidiary's beginning inventory included $30,000 in unconfirmed profit on merchandise purchased from the parent. What is the effect of the above information on noncontrolling interest in net income for the year, reported on the consolidated income statement?

A) Decrease of $1,200
B) Increase of $2,800
C) Increase of $4,000
D) Decrease of $4,000

Question 31

A parent owns 80% of its subsidiary and sells merchandise to its subsidiary at a 25% markup on cost. The subsidiary's ending inventory includes $825,000 purchased from the parent. The subsidiary's beginning inventory includes $750,000 purchased from the parent. What is the effect of the above on the parent's equity in net income of the subsidiary for the current year?

A) No effect
B) $12,000 decrease
C) $15,000 decrease
D) $12,000 increase

Question 32

A parent owns 80% of its subsidiary. The subsidiary sells merchandise to its parent at a 25% markup on cost. The parent's ending inventory includes $825,000 purchased from the subsidiary. The parent's beginning inventory includes $750,000 purchased from the subsidiary. What is the effect of the above on the noncontrolling interest in net income for the current year?

A) No effect
B) $ 3,000 increase
C) $15,000 increase
D) $ 3,000 decrease

Question 33

A parent owns 80% of its subsidiary. At the beginning of the current year, the subsidiary sells equipment carried on its books at $100,000 to its parent for $120,000. The equipment has a 10-year remaining life, straight-line. What is the effect of the above on the noncontrolling interest in net income for the current year?

A) $3,600 decrease
B) $4,000 decrease
C) $400 increase
D) No effect

Question 34

A parent owns 80% of its subsidiary. At the beginning of the current year, the parent sells equipment carried on its books at $40,000 to its subsidiary for $50,000. The equipment has a 2-year remaining life, straight-line. What is the effect of the above on equity in net income for the current year, reported on the parent's books, assuming the parent uses the complete equity method?

A) $8,000 decrease
B) $4,000 decrease
C) $5,000 decrease
D) No effect

Question 35

A parent owns 80% of its subsidiary. At the beginning of 2019, the subsidiary sells equipment carried on its books at $40,000 to its parent for $50,000. The equipment has a 5-year remaining life, straight-line. What is the effect of the above on the noncontrolling interest in net income, reported on the consolidated income statement for 2020?

A) $800 increase
B) $400 increase
C) $1,200 decrease
D) No effect

Question 36

A parent sells land costing $40,000 to a subsidiary in 2018 for $55,000. The subsidiary sells the land in 2020 to a third party for $65,000. On the consolidated income statement for 2020, the gain on sale of land is:

A) $15,000
B) $10,000
C) $0
D) $25,000

Question 37

A parent sells land to its subsidiary for $40,000 and reports a gain of $5,000. At what amount should the land be shown on the consolidated balance sheet?

A) $ 5,000
B) $35,000
C) $40,000
D) $45,000

Question 38

When completing a consolidation working paper, the eliminating entry for a prior year intercompany transfer of land includes a debit to the subsidiary's retained earnings when the transfer is:

A) A downstream sale and the transfer was made at a gain
B) An upstream sale and the transfer was made at a loss
C) An upstream sale and the transfer was made at a gain
D) A downstream sale and the transfer was made at a loss

Question 39

A parent sold land costing $400,000 to its subsidiary for $450,000 in 2017. The subsidiary still holds the land at the end of 2019. On a working paper prepared to consolidate the financial statements of the parent and subsidiary in 2019, the eliminating entry connected with this land includes a $50,000 credit to:

A) Investment in subsidiary
B) Beginning retained earnings of the subsidiary
C) Gain on sale of land
D) Land

Question 40

A subsidiary sold its parent some land at a profit of $10,000 in 2019. The parent still holds the land. On a working paper prepared to consolidate the accounts of the parent and its subsidiary in 2021, the eliminating entry connected with this land includes a $10,000 debit to:

A) Investment in subsidiary
B) Beginning retained earnings
C) Gain on sale of land
D) No effect-elimination entry is not required

Question 41

In 2016, a wholly-owned subsidiary sold land costing $100,000 to its parent for $140,000. In 2020, the parent sold the land to an outside company for $150,000. On a working paper prepared to consolidate the accounts of the parent and its subsidiary in 2020, the eliminating entry connected with this land sale includes

A) a $40,000 debit to the investment in subsidiary account
B) a $50,000 debit to beginning retained earnings
C) a $40,000 credit to gain on sale of land
D) no entry; the land is no longer in the consolidated entity

Question 42

A parent sold land costing $1,000,000 to its subsidiary in 2018 for $1,400,000. The land is still held by the subsidiary. The parent owns 80% of its subsidiary. The eliminating entry necessary for this intercompany transaction on the 2020 consolidation working paper includes:

A) A debit to the Investment account for $320,000
B) A debit to the Investment account for $400,000
C) A debit to retained earnings for $320,000
D) A debit to retained earnings for $400,000

Question 43

A parent company sells land to its wholly-owned subsidiary in 2015, reporting a gain of $35,000. In 2020, the subsidiary sells the land to an outside developer and reports a gain of $60,000. In the 2020 consolidation working paper, the elimination of this transaction will result in:

A) A $95,000 decrease in land
B) A $35,000 decrease in beginning retained earnings
C) A $35,000 increase in gain on sale of land
D) A $60,000 increase in investment in subsidiary

Question 44

On a worksheet prepared to consolidate the financial statements of a parent and subsidiary, eliminating entries made to remove intercompany gains on upstream sales of land sold in prior years, but still held within the consolidated entity, affect which account?

A) Investment in subsidiary
B) Beginning retained earnings
C) Equity in net income of the subsidiary
D) Gain on sales of land

Question 45

Which statement is true concerning the eliminating entries required for intercompany sales of land from a subsidiary to its parent?

A) If the subsidiary sold the land to its parent in 2019 and the parent sells the land to outsiders in 2020, no eliminating entries are required in 2020.
B) If the subsidiary sells the land to its parent in 2019, and the parent still holds the land at the end of the year, the eliminating entries for 2019 include an adjustment to the subsidiary's beginning retained earnings balance.
C) If the subsidiary sold the land to its parent in 2017, and the land was sold to outsiders by the parent in 2019, no eliminating entries are required in 2020.
D) If the subsidiary sold the land to its parent in 2017 at a price that is less than the subsidiary's book value, and the parent still holds the land in 2020, the eliminating entry for 2020 will reduce the land's carrying value.

Question 46

During the current year, a parent sold inventory priced at $800,000 to its subsidiary, and the parent's profits on these sales amounted to $60,000. All inventory sold by the parent to the subsidiary was sold by the subsidiary to outside customers during the year. Here is what the parent and subsidiary report for total sales, cost of goods sold, and ending inventory at year-end (for total sales between the parent and subsidiary and to outside customers):
$\begin{array}{|l|c|r|} \hline& \begin{array}{c}\text { Parent's } \\\text { Books }\end{array} & \begin{array}{c}\text { Subsidiary's } \\\text { Books }\end{array} \\\hline \text { Inventory } & \$ 300,000 & \$ 150,000 \\\hline \text { Sales revenue } & 5,000,000 & 3,500,000 \\\hline \text { Cost of goods sold } & 4,000,000 & 2,700,000\\\hline\end{array}$

At what amounts should the year's consolidated financial statements report these three balances?

$\begin{array} { l l l } & \text { Inventory } & \text { Sales Revenue } & \text { Cost of Goods Sold } \end{array}$

A) $\begin{array}{lll}\$ 450,000 && \$ 8,500,000 &&& \$ 6,700,000 \end{array}$
B) $\begin{array}{lll}\$ 450,000 && \$ 7,700,000 &&& \$ 5,900,000\end{array}$
C) $\begin{array}{lll}\$ 390,000 && \$ 7,700,000 &&& \$ 5,900,000 \end{array}$
D) $\begin{array}{lll}\$ 150,000 && \$ 3,500,000 &&& \$ 1,900,000\end{array}$

Question 47

During the current year, a parent sold $800,000 in merchandise to its subsidiary and reported a gross margin of $100,000 on these sales. The subsidiary still has merchandise purchased from the parent in its ending inventory, reported by the subsidiary at $75,000, on which the parent recorded $15,000 of profit for the current year. Which statement is true concerning the net effect of eliminating entries (I) related to this information?

A) Sales revenue is debited for $700,000
B) Cost of goods sold is credited for $785,000
C) Ending inventory is credited for $75,000
D) Sales revenue is debited for $60,000

Question 48

A subsidiary sells merchandise to its parent at a markup of 25% on cost. In the current year, the parent paid $800,000 for merchandise received from the subsidiary. By year-end, the parent had sold $625,000 of the merchandise to outside customers for $850,000, but still holds the other $175,000 in its ending inventory. Which statement is false concerning the information related to these merchandise sales, as reported on the consolidated financial statements for the current year?

A) Consolidated sales are $850,000.
B) Consolidated cost of goods sold is $500,000.
C) Consolidated ending inventory is $140,000.
D) Eliminating entries on the consolidation working paper reduce cost of goods sold by a net amount of $800,000.

Question 49

Use the following information to answer bellow Questions
A subsidiary sells merchandise to its parent at a markup of 25% on cost. In the current year, the parent had $75,000 in merchandise purchased from the subsidiary in its beginning inventory. During the current year, the parent paid $750,000 for merchandise from the subsidiary. By year-end, the parent has sold $700,000 of merchandise purchased from the subsidiary to outside customers for $900,000.

-What is consolidated sales revenue for the year?

A) $ 900,000
B) $1,650,000
C) $1,500,000
D) $ 750,000

Question 50

Use the following information to answer bellow Questions
A subsidiary sells merchandise to its parent at a markup of 25% on cost. In the current year, the parent had $75,000 in merchandise purchased from the subsidiary in its beginning inventory. During the current year, the parent paid $750,000 for merchandise from the subsidiary. By year-end, the parent has sold $700,000 of merchandise purchased from the subsidiary to outside customers for $900,000.

-What is consolidated cost of goods sold for the year?

A) $ 900,000
B) $1,300,000
C) $ 560,000
D) $ 750,000

Question 51

Use the following information to answer bellow Questions
A subsidiary sells merchandise to its parent at a markup of 25% on cost. In the current year, the parent had $75,000 in merchandise purchased from the subsidiary in its beginning inventory. During the current year, the parent paid $750,000 for merchandise from the subsidiary. By year-end, the parent has sold $700,000 of merchandise purchased from the subsidiary to outside customers for $900,000.

-What is consolidated inventory at year-end?

A) $125,000
B) $100,000
C) $ 25,000
D) $200,000

Question 52

Use the following information to answer bellow Questions
A subsidiary sells merchandise to its parent at a markup of 25% on cost. In the current year, the parent had $75,000 in merchandise purchased from the subsidiary in its beginning inventory. During the current year, the parent paid $750,000 for merchandise from the subsidiary. By year-end, the parent has sold $700,000 of merchandise purchased from the subsidiary to outside customers for $900,000.

-How do the consolidation working paper eliminating entries affect cost of goods sold?

A) net credit of $765,000
B) net credit of $725,000
C) net credit of $750,000
D) net credit of $740,000

Question 53

A parent company sells merchandise to a subsidiary company during the year at a price of $300,000, a 20% markup over its cost. The subsidiary company sells all the merchandise to outside customers during the year for $550,000. Which statement is true concerning the required consolidation eliminating entries related to these transactions?

A) Cost of goods sold is reduced by $300,000.
B) Inventory is reduced by $50,000.
C) Retained earnings is reduced by $50,000.
D) Investment in subsidiary is reduced by $250,000.

Question 54

A parent's beginning inventory contains $10,000 in unconfirmed profits on goods purchased from its subsidiary. The subsidiary's beginning inventory contains $8,000 in unconfirmed profits on goods purchased from its parent. The parent owns 80% of the subsidiary. By what amount is consolidated net income to the controlling interest increased by confirmation of profits on beginning inventories?

A) $16,000
B) $14,400
C) $18,000
D) $11,600

Question 55

A parent's ending inventory contains $60,000 in unconfirmed profits on goods purchased from its subsidiary. The subsidiary's ending inventory contains $100,000 in unconfirmed profits on goods purchased from its parent. The parent owns 80% of the subsidiary. By what amount is consolidated income to the noncontrolling interest reduced by the adjustment for unconfirmed profits on ending inventories?

A) $32,000
B) $20,000
C) $12,000
D) $ 8,000

Question 56

A parent sells merchandise to a subsidiary at a markup over its cost. The subsidiary has sold all of the merchandise by year-end. Which of the following working paper eliminating entries are needed to consolidate the financial statements of the parent and subsidiary at year-end, concerning the intercompany sales of merchandise?

A) Debit sales, credit cost of goods sold for the sales value of the merchandise sold by the parent.
B) Debit sales, credit cost of goods sold for the sales value of the merchandise sold by the parent, and debit cost of goods sold and credit ending inventory for the unrealized profit included in the subsidiary's ending inventory.
C) No eliminating entries are required.
D) Debit investment in subsidiary, credit ending inventory for the unrealized profit included in the subsidiary's ending inventory.

Question 57

Use the following information to answer bellow Questions
A parent sells merchandise to its subsidiary at a markup of 20% on cost. In the current year, the subsidiary had $120,000 in merchandise purchased from the parent in its beginning inventory. During the current year, the subsidiary paid the parent $720,000 for merchandise, and sold merchandise purchased from the parent to outside customers for $870,000. At year-end, the subsidiary has $180,000 in merchandise purchased from the parent in its ending inventory.

-What is consolidated sales revenue for the year?

A) $ 600,000
B) $ 870,000
C) $1,590,000
D) $ 720,000

Question 58

Use the following information to answer bellow Questions
A parent sells merchandise to its subsidiary at a markup of 20% on cost. In the current year, the subsidiary had $120,000 in merchandise purchased from the parent in its beginning inventory. During the current year, the subsidiary paid the parent $720,000 for merchandise, and sold merchandise purchased from the parent to outside customers for $870,000. At year-end, the subsidiary has $180,000 in merchandise purchased from the parent in its ending inventory.

-At what amount does the subsidiary report cost of goods sold on merchandise purchased from the parent?

A) $780,000
B) $600,000
C) $720,000
D) $660,000

Question 59

Use the following information to answer bellow Questions
A parent sells merchandise to its subsidiary at a markup of 20% on cost. In the current year, the subsidiary had $120,000 in merchandise purchased from the parent in its beginning inventory. During the current year, the subsidiary paid the parent $720,000 for merchandise, and sold merchandise purchased from the parent to outside customers for $870,000. At year-end, the subsidiary has $180,000 in merchandise purchased from the parent in its ending inventory.

-What is consolidated cost of goods sold?

A) $ 550,000
B) $ 600,000
C) $1,150,000
D) $ 660,000

Question 60

Use the following information to answer bellow Questions
A parent sells merchandise to its subsidiary at a markup of 20% on cost. In the current year, the subsidiary had $120,000 in merchandise purchased from the parent in its beginning inventory. During the current year, the subsidiary paid the parent $720,000 for merchandise, and sold merchandise purchased from the parent to outside customers for $870,000. At year-end, the subsidiary has $180,000 in merchandise purchased from the parent in its ending inventory.

-What is consolidated inventory at year-end?

A) $120,000
B) $100,000
C) $150,000
D) $180,000

Question 61

Use the following information to answer bellow Questions
A parent sells merchandise to its subsidiary at a markup of 20% on cost. In the current year, the subsidiary had $120,000 in merchandise purchased from the parent in its beginning inventory. During the current year, the subsidiary paid the parent $720,000 for merchandise, and sold merchandise purchased from the parent to outside customers for $870,000. At year-end, the subsidiary has $180,000 in merchandise purchased from the parent in its ending inventory.

-How do the consolidation working paper eliminating entries affect cost of goods sold?

A) net credit of $700,000
B) net credit of $710,000
C) net credit of $720,000
D) net credit of $690,000

Question 62

For intercompany merchandise sales, how do the consolidation eliminating entries differ between upstream and downstream sales?

A) Unconfirmed intercompany profit on upstream ending inventory is debited to beginning retained earnings, while it is debited to investment in subsidiary for downstream sales.
B) Sales revenue from upstream sales are eliminated but sales revenue from downstream sales are not.
C) Confirmed intercompany profit on downstream beginning inventory is debited to investment in subsidiary, while it is debited to beginning retained earnings for upstream beginning inventory.
D) The difference between intercompany profit on ending inventory and beginning inventory is an adjustment to investment in subsidiary for downstream sales but it is an adjustment to retained earnings for upstream sales.

Question 63

At the beginning of the current year, the parent sold new equipment for which it paid $1,000,000 to its subsidiary for $1,500,000. The parent had not recorded any depreciation on the equipment. The equipment had a remaining life of 10 years at that time, straight-line. The subsidiary still has the equipment at year-end. On the consolidation working paper, the net effect of eliminations (I) will be to credit:

A) Accumulated depreciation for $50,000
B) Depreciation expense for $150,000
C) Equipment, net of accumulated depreciation for $450,000
D) Gain on sale of equipment for $500,000

Question 64

On January 1, 2017, a subsidiary sold equipment to its parent for $600,000. The subsidiary's original cost was $300,000 and as of January 1, 2017, $100,000 in depreciation had been recorded on the subsidiary's books. At the date of sale, the equipment had a 5-year remaining life, straight-line. It is now December 31, 2020 (4 years since the sale), and the parent still holds the equipment.
How should this equipment be reported on the consolidated balance sheet and income statement?
$\begin{array} { c c c c } & \begin{array} { c } \text { Equipment } \\\text { (cost) }\end{array} & \begin{array} { c } \text { Accumulated } \\\text { Depreciation-Equipment }\end{array} & \begin{array} { c } \text { Depreciation } \\\text { Expense }\end{array}\end{array}$

A) $\begin{array} { c c c c } & \$ 300,000 &&&&& \$ 160,000 &&&&&&&& \$ 60,000 \\\end{array}$
B) $\begin{array} { c c c c } & \$ 600,000 &&&&& \$ 320,000 &&&&&&&& \$ 80,000 \\\end{array}$
C) $\begin{array} { c c c c } & \$ 300,000 &&&&& \$ 260,000 & &&&&&&&\$ 40,000 \\\end{array}$
D) $\begin{array} { c c c c } & \$ 600,000 &&&&& \$ 260,000 &&&&&&&& \$ 40,000\end{array}$

Question 65

Use the following information to answer bellow Questions
On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary's original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary's books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment.

-In the consolidation eliminating entries for 2021, beginning retained earnings is debited for

A) $204,000
B) $170,000
C) $192,000
D) $136,000

Question 66

Use the following information to answer bellow Questions
On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary's original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary's books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment.

-In the consolidation eliminating entries for 2021, depreciation expense is reduced by

A) $32,000
B) $20,000
C) $34,000
D) $52,000

Question 67

Use the following information to answer bellow Questions
On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary's original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary's books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment.

-In the consolidation eliminating entries for 2021, the equipment account (gross cost) is reduced by a net amount of

A) $340,000
B) $320,000
C) $300,000
D) $280,000

Question 68

Use the following information to answer bellow Questions
On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary's original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary's books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment.

-In the consolidation eliminating entries for 2021, the accumulated depreciation account is reduced by a net amount of

A) $150,000
B) $130,000
C) $170,000
D) $160,000

Question 69

A parent owns 80% of its subsidiary. The parent sells equipment to the subsidiary for a gain of $80,000 at the beginning of 2019. At that time, the equipment had a remaining life of five years. The subsidiary uses straight-line depreciation with no residual value, and still holds the equipment at year-end. How will the intercompany eliminations for this transaction affect consolidated income for 2019, assuming the subsidiary still holds the equipment?

A) $12,800 increase
B) $16,000 increase
C) $48,000 decrease
D) $64,000 decrease

Question 70

A parent owns 80% of its subsidiary. The parent sells equipment to the subsidiary for a gain of $80,000 at the beginning of 2019. At that time, the equipment had a remaining life of five years. The subsidiary uses straight-line depreciation with no residual value. How will the intercompany eliminations for this transaction affect consolidated income for 2020, assuming the subsidiary still holds the equipment?

A) $12,800 increase
B) $16,000 increase
C) $48,000 decrease
D) $64,000 decrease

Question 71

On January 1, 2019, a wholly-owned subsidiary sold equipment to its parent for $500,000. The subsidiary's books showed original cost and accumulated depreciation of $300,000 and $80,000, respectively, at the date of sale. The equipment had a remaining life of five years and is straight-line depreciated. On December 31, 2020 (two years after the sale), the unconfirmed gain on the equipment is:

A) $112,000
B) $ 80,000
C) $120,000
D) $168,000

Question 72

A parent company sells equipment to its subsidiary on January 1, 2018 for $90,000. At the time, the equipment was reported on the parent's books at a net book value of $60,000. The remaining life of the equipment as of January 1, 2018 is six years, and straight-line depreciation, no residual value is used. At what net value should this equipment be reported on a December 31, 2020 consolidated balance sheet (three years after the intercompany equipment sale)?

A) $90,000
B) $40,000
C) $45,000
D) $30,000

Question 73

On January 1, 2019, a parent sold equipment to its wholly-owned subsidiary for $800,000. The parent's books reported the equipment's original cost and accumulated depreciation at $600,000 and $100,000, respectively, at the date of sale. At the time of the sale, the equipment had a remaining life of eight years, and is straight-line depreciated, no residual value. On December 31, 2020 (two years after the sale), the consolidation eliminating entries reduce:

A) The equipment account, at original cost, by $200,000
B) Depreciation expense by $67,500
C) Accumulated depreciation by $25,000
D) Beginning retained earnings by 300,000

Question 74

A parent owns 80% of its subsidiary. At the beginning of the current year, the subsidiary sells new equipment costing $40,000 to the parent for $85,000. The equipment has a 5-year remaining life at the time of sale, and straight-line depreciation is appropriate. The subsidiary has not recorded any depreciation on the equipment at the time of sale. It is now the end of the current year. The parent and subsidiary report the following balances related to the equipment:
$$\begin{array} { | l | c | c | } \hline & { \text { Parent } } & \text { Subsidiary } \\\hline \text { Equipment } & \$ 85,000 & \\\hline \text { Accumulated depreciation } & 17,000 & \\\hline \text { Gain on sale of equipment } & & \$ 45,000 \\\hline\end{array}$$ What should be reported on the consolidated statements for 2020, with respect to this equipment?

A) Equipment, $85,000; Accumulated depreciation, $8,000; Gain, $-0-
B) Equipment, $40,000; Accumulated depreciation, $17,000; Gain, $-0-
C) Equipment, $85,000; Accumulated depreciation, $8,000; Gain, $9,000
D) Equipment, $40,000; Accumulated depreciation, $8,000; Gain, $-0-

Question 75

On January 2, 2019, a parent sells a building with original cost of $100,000 and accumulated depreciation of $25,000 to its wholly-owned subsidiary for $60,000. The estimated remaining life of the building is 5 years, and straight-line depreciation is appropriate. On the December 31, 2021, the subsidiary still owns the building. The net effect of the working paper eliminations (I) for 2021 for this intercompany building sale:

A) Reduce 2021 depreciation expense by $3,000
B) Add $15,000 to the original cost of the building
C) Increase investment in subsidiary by $6,000
D) Increase accumulated depreciation by $34,000

Question 76

At the beginning of 2019, a subsidiary sells equipment with a book value of $400,000 to its parent for $500,000. At the time of the sale, the equipment had a remaining life of 5 years, straight-line. The parent still has the equipment at the end of 2020 (2 years later).
On the consolidated financial statements for 2020, how is the equipment reported?

A) Book value $400,000, depreciation expense $100,000
B) Book value $320,000, depreciation expense $80,000
C) Book value $240,000, depreciation expense $80,000
D) Book value $200,000, depreciation expense $100,000

Question 77

At the beginning of 2019, a subsidiary sells equipment with a book value of $400,000 to its parent for $500,000. At the time of the sale, the equipment had a remaining life of 5 years, straight-line. The parent sold the equipment to an outside buyer for $470,000 at the end of 2020 (2 years later). The consolidation eliminating entry needed to consolidate the accounts of the parent and subsidiary at the end of 2020 has what effect?

A) Decrease depreciation expense by $40,000
B) Increase gain on sale by $60,000
C) Increase investment in subsidiary by $100,000
D) Reduce equipment (net) by $80,000

Question 78

At the beginning of 2019, a parent sells equipment with a book value of $400,000 to its subsidiary for $500,000. At the time of the sale, the equipment had a remaining life of 5 years, straight-line. The subsidiary sold the equipment to an outside buyer for $470,000 at the end of 2021 (3 years later). The consolidation eliminating entry needed to consolidate the accounts of the parent and subsidiary at the end of 2021 has what effect?

A) Decrease depreciation expense by $40,000
B) Increase gain on sale by $60,000
C) Increase investment in subsidiary by $60,000
D) Reduce equipment (net) by $80,000

Question 79

At the beginning of 2018, a parent sells a building with a book value of $1,000,000 to its subsidiary for $1,500,000. The building has a 10-year remaining life at the time of sale. Straight-line depreciation is used, with no residual value. At the beginning of 2021, the subsidiary sells the building to an outside company for $800,000. On the 2021 consolidation working paper, the unconfirmed intercompany gain on the building sale is recognized in the amount of:

A) $350,000
B) $500,000
C) $400,000
D) $100,000

Question 80

During the current year, a parent company has the following transactions with its subsidiary:
•The subsidiary provided services to the parent, billed at $40,000. The services cost the subsidiary $32,000. At the end of the year, the parent still owes the subsidiary $5,000 related to these services.
•The parent provided services to the subsidiary, billed at $10,000. The services cost the parent $8,000. At the end of the year, the subsidiary still owes the parent $2,000 related to these services.
Required
Prepare the eliminating entries for the year-end consolidation working paper, related to these two transactions. Both companies report service costs in operating expenses and service revenues in an other revenues account. Amounts owing between parent and subsidiary are reported in accounts receivable and accounts payable.